Disclaimer: I created PfP: Pain-free Passwords as a hobby, it could be considered a LastPass competitor in the widest sense. I am genuinely interested in the security of password managers which is the reason both for my own password manager and for this blog post on LastPass shortcomings.
TL;DR: LastPass fanboys often claim that a breach of the LastPass server isn’t a big deal because all data is encrypted. As I show below, that’s not actually the case and somebody able to compromise the LastPass server will likely gain access to the decrypted data as well.
A while back I stated in an analysis of the LastPass security architecture:
So much for the general architecture, it has its weak spots but all in all it is pretty solid and your passwords are unlikely to be compromised at this level.
That was really stupid of me, I couldn’t have been more wrong. Turned out, I relied too much on the wishful thinking dominating LastPass documentation. January this year I took a closer look at the LastPass client/server interaction and found a number of unpleasant surprises. Some of the issues went very deep and it took LastPass a while to get them fixed, which is why I am writing about this only now. A bunch of less critical issues remain unresolved as of this writing, so that I cannot disclose their details yet.